The Myth of the Government Not Being Able to Borrow

Executive Summary

• The quotation in this article explains the impossibility of a government not being able to borrow in its own currency.

Introduction

This is covered in the following quotation.

“Fear the government will be unable to sell securities overlooks the mechanics of the process itself. The imperative of borrowing is interest rate support. By issuing government securities, the government offers banks an opportunity to exchange noninterest bearing reserves for interest bearing securities. If all banks would rather earn zero interest on their assets than accept interest payments from the government, the refusal to accept interest becomes a de facto tax on the banking system. From the Treasury’s point of view the government’s inability to attract any lenders would actually be a benefit. Imagine, the government spends money and the banking system, in a sense, lends the money at zero interest by refusing to accept interest on the new deposits which the government spending created. Instead, the banking system is content to leave the money in a non-interest bearing account at the Fed. The money is held at the Fed either way – it has no other existence. If the money is left as excess reserves it sits in an non-interest bearing account at the Fed. If the money is loaned to the government by purchasing government securities it again is
held at the government’s account at the Fed.” – Soft Currency Economics / Moseler

Source: Soft Currency Economics

http://moslereconomics.com/wp-content/uploads/2018/04/Soft-Curency-Economics-paper.pdf